tv Street Signs CNBC October 1, 2012 2:00pm-3:00pm EDT
wednesday night, and then the unemployment numbers on friday morning. thanks for watching. >> fasten your seatbelts! >> that's all for this edition of "power lunch." street signs begins right now. see you tomorrow. have you hugged your fed governor today? you should, because this is the fed-led rally that just keeps on giving all year. stocks, gold, home prices, all moving higher. but is a new bubble forming? some say yes and you will not believe in what. so what are you doing with your money ahead of the election? you buying? you selling? are you hiding under the mattress? we want to hear from you. tweet us your strategy. and facebook talking up its cell phone strategy. hear more in our exclusive interview with cheryl sandberg. coming up, the stocks have come off their highs of the session but the dow may still be on the verge of breaking a recent trend.
it could finish higher for only the second time in 17 mondays. the s&p 500 also on track to break a recent trend. it is higher today after being down for 8 of the past 10 sessions. as for the nasdaq, it has dipped into negative territory several times today. it is back in the black and trying to avoid its fifth drop in six sessions. let's get straight down to bob and rick. it is a new quarter, a new week. i believe since 1980 the fourth quarter has generally been the best quarter of the year for the s&p. could it be a little different this time round considering we've got lot of things to get through, like an election and an upcoming fiscal cliff? >> yeah. i think most important thing is still going to be whether we can keep the expected momentum in some of the earnings. this may be the trough for earnings. we'll be at negative in q3 for the earnings compared to the third quarter of last year. a lot of expectations are riding on pushing up the earnings this quarter, particularly in the financials. we're expecting 20% growth.
if you ask me where the tension is, i'm not sure they can pull out that kind of growth. dow industrials, we sort of sold going into bernanke's -- he spoke at the economics club in the midwest. the important thing here, no real change in his policies. we did see some comments on inflation. he's not that worried about it. elsewhere in the major sectors, risk on today. materials, financials, industrials all to the up side. want to point out we're getting very little movement in the transports. nasdaq has been negative as well earlier in the day. some sectors still not participating in the rally we're seeing. >> a lot of people not participating in the rally. we're going to talk about that in a second. rick santelli, i saw yields moved higher after the ism data. how are they reacting post-bernanke speech where he basically said, he's not seeing a recession but growth is weak and that could stop people from getting back to work. >> you know, the responding in a nonplussed fashion. i find it so extraordinary. if you look at a two-day chart
of 10s, this one is a good two-day chart because it encompasses the close in yields for the end of last quarter and where they're trading day. virtually the same yield -- right around 1.63%. but it doesn't end there. look at the last quarter that ended on june 29th. 10-year note yields -- 1.64%. wile we watch equities benefit from so many of the things ben bernanke and company are doing, it seems as though treasuries are still hunkered down no matter if it's a stronger than expected on the ism or some of the weaker, like chicago, the treasury market seems to be kind of entranched. normally i get e-mails about the markets. this current e-mail says -- hey, bob pisani and rick santelli must buy their shirts and ties at the same place. i guess we looked a little similar there. >> if i put you side by side, i'd think you were twins, rick! thanks so much. here's what's interesting. another survey saying that allocations to stocks continues
to drop. but stocks keep moving higher which begs the genius question of exactly who is buying stocks. let's try to find out. joining us, the president of kinsdale trading and managing director at hightower advisors. stocks move higher for one reason -- there are more buyers than sellers. but every study i see says americans hate stocks. nobody's buying -- who's buying? >> i think what you're seeing is some institutional purchases. you have a fed who had's very active right now and this is clearly a liquidity prop by the fed. we even heard today the chicago fed president evans say we're going to keep this thing going until employment gets down below 7%. i think this is the backstop behind a market filled with uncertainty. >> it sound like what you're saying is the fed making cheap money available to the big banks, they have nothing better to do with that money than to buy stocks, which does not imply an overall optimistic scenario
for the american investing public. >> i think if you look at what's happening in the current environment, this is an environment surrounded with uncertainty. we have the election in front of us here in just about a month. we have china. the best thing that happened to europe in the last several months is the ryder cup today. other than that, europe's really been struggling. here we are sitting in a world of uncertainty and the markets get higher and qe3 comes in remarkably at a high point in the market as opposed to a low point in the past. nothing but fuel to a fire. >> absolutely. go figure. tom, let me get to you. to leo's point about the institutions propping up the market, along with the central bark, he bank, here's a staggering stat. during the time june to august individual investors yanked out almost $40 billion. here's mom and dad at home, retail investors, not participating in this rally. and the fear is they may get in at the top when they think, i don't want to miss out. is that a real danger right now?
>> well, i think it is in the short term, yes. i mean unfortunately, we always sort of tend to see the retail investor come in at the last moment. it's been sort of a fact of investing history. but we have seen a market rally despite intense skepticism. this is the most hated 14% positive year i've ever seen and still there's so much skepticism in the market, the pain trade -- remains higher. >> if leo's right, tom, this is not some let's buy and hold stocks because we like the earnings at ibm or ge. this is banks saying we got nothing better to do with our money, which implies when they do, they'll sell. >> well, that's right. i talked to everybody i know. all of us are sort of in the same mindset. there are so many dangers out in the market. how does the market keep rallying. but i've been in this business long enough to know that the market will do what doesn't make
any sense right until everybody piles in. then it will turn around and do the opposite. even though there's a lot of uncertainty, there is still the case to be made for higher equity prices. >> can we take one of the dangers away of a change of power come november? because it seems as if wall street at this point is pricing in a re-election by obama. in other words, status quo. if that is the case, how do we invest our money? >> i think you have to differentiate the short term and long term. i think the point was just made -- long term, we're still very bullish on equity. we see valuations at levels that make a lot of sense to us and there are sectors of the market that look very attractive. short term you have uncertainty. and the market may or may not be pricing in an obama re-election. that's all going to potentially change during the debates. it will either go higher or lower. i think at the end of the day, the election is a short term mover of the marketplace and we would look for that volatility
to add positions that we have a lot of conviction in. >> we've got to leave it there. tom, leo, thank you very much for kicking off our show. >> thank you very much. so, what are you, america, doing with your money. how are you changing your investments, your 401(k). right? a lot? a little? not at all? we make our tests hard here on street signs. you can go to streetsigns.cnbc.com. or tweet us your responses or send a very well trained pigeon. >> yes. a market flash not delivered by pigeon but by word of mouth. >> good afternoon, guys. we're watching shares of service now, ticker now. looking at a downgrade from ubs. they took the stock from neutral to sell with a price target of $28. the firm is saying while they aren't questioning the strong fundamentals, they don't like the valuation here. we got an 8% move downward on this. $58 for this stock right now. well, it is a sector a lot
of investors believe is a winner, but it may be way overdone. we will tell you what "it" is coming up. we're about to tell you where a lot of smart money is going now and has been going all year. that is next. ♪ ♪ ♪ [ male announcer ] introducing a reason...to look twice. introducing a stunning work of technology -- the entirely new lexus es. and the first-ever es hybrid.
and a stock split. right now tenet is trading higher by more than 4%. of course this was a $50 stock ten years ago. how the great have fallen. all of the hospital stocks have really been on a tear since the beginning of the year. look at some of these names. health management up 12%. universal health systems, 18%. we just talked about tenet health care, hca is up 55%. and community health systems, the big winner among hospitals -- up 70%. a lot of that run-up is purely political. as president obama's poll ratings improve, hospital stocks are also going higher. what is the trade ahead of the november vote? let's bring in the managing director at crt capital. she covers hospitals and other health care stocks. great to have you on our show today, cheryl. to what extent are hospitals and health care at this stage a purely political play? >> well, there is a fundamental argument here that there's easy comps but there's no question that the market was very, very
happy to ignore those fundamentals for quite some time this summer until the conventions. if you look at the performance of the stock post-convention, i'm sure either of the candidates would have loved to have had that kind of a bounce. hca in particular is up very, very strongly. it's had a sequence of events at hca and tenet over the past year that have restore investor confidence after a dreadful summer last year. but the fact of the matter is that this is about at pure a play as you're going to get on the fate of the election. i think if you watch this debate very closely on wednesday, if mr. romney has a strong showing, all of that good, strong upward movement is going to come crashing back down around our had he on thursday. >> for all of the stocks in the sector or are there those that are immune to politics? >> in the hospital sector? i don't think anybody's immune to the politics. this is a very, very politicized group. their entire fate, in essence, of these stocks will depend in the near term at least on an
obama win. that's because of the power of the implementation of health care reform. obama win something synonymous with january 1, 2014, most of that nasty uncompensated care, the no pay heads in the beds begins to go away. as hospitals have been the insurers of last resort, the investor reaction to the relief of that is this quite stunning and staggering move we've seen since post-convention. >> i'm worried about something a little more macro, sheryl. forget about health care reform law. tenet was a $20 stock eight years ago. hca came, went, now came back, community health has had issues. they seem to have a lot of other problems which makes me nervous to invest in them. >> well, look. being in the hospital business is an extraordinarily difficult business to begin with. you're taking care of patients on a daily basis. you've got doctors who aren't necessarily your employers. you can't control them. >> they're sued by everybody constantly. >> absolutely. and congress is always looking
at hospitals as a source of funds for all their other problems. so it is really not easy to be a hospital company, and it is especially not easy today when the only bipartisan issue it seems in congress is the willingness to investigate and prosecute medicare fraud. so there's an awful lot going on in this industry that's -- that are risks. but the market's really, really good at discounting risks these days. it's not been so good especially as far as health care services is concerned at discounting the up side. i think what you're seeing is when the supreme court made their decision to allow most of reform to go forward, all of the bad news about reform were in these stocks. none of the good news was. we're now seeing the correction of that. >> sheryl, just real quick. you've got a sell rating on community health. why is that? >> i have some very strong fundamental concerns about their basic business model, the acquisition model that the department of justice investigation, as well as some outstanding whistle-blower suits and i'm very concerned that it is getting tougher and tougher for them, because of their
particular circumstances, to continue to make the earnings they've been making, especially since the cash flow has not kept up. >> sheryl, thank you. here's some bad news potentially for all the hospitals that is just making headlines today, starting now, hospitals nationwide are going to get hit with reduced medicare reimbursements if they have high readmittance rates for certain patients. penalty is part of the president's health care law. how much impact will this really have on hoopspitals? joining us, vice president for clinical affairs at the nyu langone medical center. andrew, thank you for joining us. scary story out of the "washington post" today that brought it to our attention here. which if hospitals have a lot of people coming back for the same treatment in a short period of time, they're going to get whacked by the government. how severe a problem is this? >> it is a big problem nationally and right now we're talking about the cost control provisions of health care
reform. so everything that you've been hearing about in the news, the general news anyway, has been about health insurance reform. this is now how are we going to pay for the health insurance reform and an easy target is to take it out of the hospitals because medicare pays hospitals a lot of money. every hospital grapples with hospital readmissions. there's a lot of controversy around penalizing hospitals if their patients, for example, don't comply with their discharge instructions. every hospital's going to be hit with this penalty. >> and do you think that this is going to impact some hospitals more than others, particularly those in the inner cities? >> well, a lot of data out there and lots of people arguing both sides of this. again i think it is going to impact most hospitals. clearly the bigger the hospital the more -- hospitals operate on very thin margins as it is. so every percentage reduction in the medicare reimbursement hurts. is just the beginning. penalties actually go up to 3% in a couple years so we're talking about a lot. inner city hospitals, there's a lot written about them. poor people have a harder time
complying with getting back -- transportation issues, coming back to the doctors to do all the things you need do to stay out of the hospital. on the other hand, public hospitals in particular are well equipped with their medical staffs that tend to be employed by the hospitals, they're well equipped to provide that kind of care. so the jury's out about who is going to suffer the most. certainly the jury is saying we don't care, everybody plays by the sams rules on this one. >> what does it mean for us, the patient? >> i think right now nothing. this is just hospitals are -- let me rephrase it. i think it is good for the patient any time you put money into keeping patients well, that's good for the patient. but it is tough for the hospitals because not only do you have the penalties, you have -- to avoid the penalties you have to invest a lot of money into making sure you have the staff that can follow up on these patients and make sure they're compliant with their discharge instructions. i think for patient it is good. i think it is very expensive to the health care system. >> andrew, thank you very much for your insight on the topic. another market flash.
a stock pop coming from the value investing congress, i believe? >> that's right, mandy. barry rosenstein is speaking, discussing agrium proposing the company spin off its retail unit saying it could add $50 to the value of the shares. we saw 3% pop on the stock initially and now we're seeing it is up by about 2.5%. keep in mind, you guys are going to be talking to rosenstein. he'll be on street signs at 2:50. make sure you stay tuned for that interview. >> thank you very much. not stocks, not gold but another asset class some say may be forming a bubble and this one will surprise you. it is ahead. and later on, amazon shares already having a great 2012. now the company's getting a brand-new shipment of good news. it's the giant thing behind jeff basos, called the kindle paper weight. that is not actual size but we're about to tell you why some experts say this is a clincher in the ereader battle.
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home builder stocks are mixed today. but they have been on an absolute tear this year. names like lennar, kb moment, have more than doubled over the past year. but like any good run that's now getting mainstream attention, folks, be careful. some say it is all over for these companies. but not our next guest. if you remember on this show -- was it november, october, last year, you came on pounding the table on these names. you've been right. are you advising your clients to sell now? >> stay the course. not the time to sell. easing by the fed supports much better valuations and recent earnings reports by kb moment and lennar suggest that the
recovery is in full swing -- >> i look at kb -- i'm going to push back. i was just looking at kb homes' income statement the last few years. sales have been kind of flat. >> if you want to look at strong, robust growth, new orders coming out of lennar last monday, up 44%. the fact of the fact is traffic's up. people are buying homes. we have a multi-year run. in concert with the fed's easing abc news we're going to get better pricing which going to spur incremental profitability. this supporting higher valuations. no reason to get out of the stocks right now. >> you wouldn't say some valuations are looking a little stretched? we had you on i believe it was september 21st. already for all of the companies that you were following you had exceeded your price targets and you were staying you were still positive then but surely some of them are looking a little bit stretched. >> you are absolutely right. we had to increase our price targets to reflect our enthusiasm for the group. we aren't saying you are going to achieve the same kind of returns you did year to date which has been phenomenal and probably once in a lifetime.
but if you're thinking are these stocks going to outpace the market in the next year, if the market's up, we're going to bet yes. >> your price targets in fact your newly revised higher are 35% more on lennar and kb home that the stocks are trading at today. how do we skreez another 35% out of these t these two names is there we think by the end of 2013 we'll see lennar go into the low 40s. favorable pricing, tremendous market growth -- >> with all due respect, what did you underestimate before? >> the cadence of the recovery is better than anticipated. we thought anemic gdp growth would be a lag. >> would you rate the building products companies differently?
>> any time. we make a very big differentiation. we really like fortune brands home and security because it is domestic building products company. we really think those companies that have other exposure to other domestic plays fundamentally. we're more concerned about the owens corning and mohawks which. >> come back again some time. turns out that crime does pay. an auction of crime memorabilia raked in more than $1 million over the weekend. two guns once used by bonnie and clyde sold for more than half a million dollars. items from gangsters al capone and eliot ness were also told. the combined total sold for $1.1 million. nat gas closing at the high for the year. sharon? >> we have a 15-cent gain just today in natural gas. it's been up the last five sessions more than 50 cents over
that period of time. today it looks like we're going to have a fresh close right here at the highest level of the year. we've already had an intraday high today, $3.48 for this front month contract. why are natural gas prices rallying? we've had several forecasters come out today saying they believe we will see colder temperatures throughout the northeast and midwest over this week and next and that's really helping to fuel what has already been a rally on a lot of momentum, a lot of heavy volume in this session. >> sharon, thank you. see you again. she is supposed to be the human, warm, likable face of facebook. >> sheryl sandberg is her name. she's opening up to cnbc today. but is her performance living up to her reputation? you're about to see it for yourself and you can decide.
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happy monday, everybody. street talk time. first up, astrazeneca, shares today are actually off their lows but they are to the downside. what is going on? >> they were down a little more earlier. but the company is suspending or ending its share buyback program. that spooked people out especially after the close. it has come back a little bit but analysts saying that really
this could be either the disappointment about how well the program worked, ie the buyback, or something about astrazeneca's strategy. of course they faced a lot of criticism lately about their absence of late stage drugs in the pipeline and they have underperformed the majority of their peers this year. >> it is about pipeline, pipeline, pipeline for these companies. we've got microsoft as well which is getting a downgrade today. >> just when microsoft was looking good the last couple of months. rbc downgrading from sector perform to outperform. this is mostly a valuation call. a lot of the gains around windows 8 are already probably priced in to the name. hitting the stock about .5%. 3m buying se -- krechlt radyne. >> they're in a lot of thinks but one of the things they do is
make ceramic body armor. you got 3m with scotch tape post-it notes and ceramic body armor. $35 per share deal. it is about a 43% premium. >> probably a little light er raymond james is lowering sprint. >> it's up 135% coming in to today. raymond james thinks that much of that run has to do with expectations but sprint will either merge with another company or buy other companies. lot of talk about the potential t-mobile deal. analyst at raymond james say no. he thinks a lot of action t-mobile's taken recently, ceo, some tower sales indicate the company does not want to do a deal valuation call. the stock down 4.3%. >> that is a chart. >> that is a chart that every stock wants. from the value investing congress, getting splattered. splunk.
>> hedge fund manager zach buckley says short splunk. this is at a big conference in manhattan about two hours ago. buckley says splunk is in a very tough competitive position, sorts of squeezed into a niche between quality and price. they got to compete against oracle, intel, hp, microsoft. in other words, this is one hedge fund manager's opinion but this value investing conference is why we're there, by the way. he says short splunk. >> we're going to actually be heading to the value investing congress. joined by barry rose enstein, just off a big win with a well timed entry and exit, turning up the heat on fertilizer company agrium. david faber has an exclusive interview later on this hour. facebook stock is down more than 40% since its ipo offering.
they recently started sharing ads to their half a billion users. julia boorstin spoke exclusive to the kro sheryl sandberg and she joins us now from facebook's new york headquarters. what did you hear today, julia? >> well, mandy, sheryl sandberg told me making money from the mobile users is a top priority and she couldn't deny the company has a lot of work do. she did say that facebook is uniquely positioned to pull off mobile ads. >> mobile is obviously a huge trait for the company and a huge opportunity. we have a big mobile network both in terms of our users over 500 million, but also in terms of the other apps and sites that are enabled with facebook. we have over 9 million across mobile and desktop in the world. >> how can you compete with google whether it comes to an ad network? >> our results are very strong. people who are using facebook to reach customers are finding that because we have real people and real engagement the results
compare favorably with basically anything else they do. even our targeting. if you take a narrow targeting for advertising -- women, 18 to 28 -- the average online actual getting that right is about 35%. our being aaccuracy is 90%. just that difference there is tremendously valuable in terms of making marketers get the bang for their buck they need. >> has any mobile app you've launched in august boosted revenue? >> the new mobile apps is ebb gauging audience. importantly, our mobile users are more engaged than even our desktop users who are already the most engaged users anywhere in technology. if you're a mobile user, you're 20% more likely to come back to facebook on a given day. >> how do you balance the risk of overwhelming mobile users with ads and the absolute need to start rolling out more mobile ads? >> if ads are good and users
like them, you really mitigate that risk. what we're doing is as we're rolling out ads into mobile -- which we just rolled out this year, we're testing very carefully engagement on those ads vis-a-vis engagement on other parts of the experience and those tests are going very well. importantly, we also see that our mobile ads are more engaging compared to the other ads we've had on the right-hand side. on average, a promoted page post, if it goes through news feed, whether on desktop or mobile, is eight times more engaging than that exact same post on the right-hand side. that's a big opportunity for us. >> wall street also talks about facebook as having a mobile problem. lou el how else are you trying to make money from mobile. >> we are the number one mobile use, usage, in most every market, on most every platform in the world. we're the number one free downloaded app on ios and
andro android. a lot of companies have the problem that they don't know what to do with their ads in mobile because their ads are on the rye hand side frt desktop. when go to a mobile device you cut off that right-hand side, where does the ad go. our most effective ads running through news feed. that creates a very natural opportunity to have an advertising experience on mobile. it is just rolled out this year but it is going really well. >> wall street is very curious to see how it is going which we'll hear on october 23rd when facebook reports its next quarterly results. can you find much more of my interview on my blog page. we'll have more with my exclusive with sandberg in the 4:00 hour of the closing bell. >> wall street needs to now be convinced on all of this as well. beyond mobile ads, to what extent did she expound on other ways they can monetize, other ways that they can make money there at facebook? >> well, of course, advertising is the core of facebook's business. well over 80% of its annual
revenue but they are talking about going into tote ll new revenue streams. thee talked about the potential in social search which would be in a lot of ways direct competition with google. she also talked about e-commerce. remember last week facebook launched its facebook gifts business. facebook can sell a lot of products, then take a cut from the retailers. she also talked about a third area of growth which no one has really been thinking about yet which is premium services for businesses. that means analytics, customer service, that kind of thing. they'd charge big brands for it. so another potential area of -- >> you need plans for a machine where you put a quarter in and get ten minutes? >> i don't think she talked about that yet, brian. but who knows with a billion users, potential sendless. >> recommend that, julia. thank you. or don't. so far, the reviews for iphone 5 have been, but there is one new tech gadget that's getting not just good, not just
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coming up on "closing bell," stocks are in rally mode. we'll hear from one top strategist who says we are gearing up for a market melt-up. plus, an exclusive with oregon cal's ceo, mark hurd. we'll find out what it is like to work with oracle's eccentric ceo larry ellison. congress may be on another break but we'll hear from somebody who's working on another problem, debt problem, and it is much less painful to falling off the fiscal cliff. we'll see what that's all about. maria's in san francisco i'm in new york. we got you covered coast to coast on "the closing bell." >> thank you, bill.
your disaster dujour is tap. molson coors. kind of odd, stock down almost 4%. they said they're going to combine their european units that represents 28% of total global volume. generally when companies talk efficiencies and potential cost cuts, stocks go up. not today. >> you would think. today's "sunshine" is amazon. not so much for the stock but for glowing reviews for its new ereader, the paper white. critics are loving it. wired magazine deemed it the king of all ereaders. does not get too much better than that. jon fortt, it reads like a huge hit. >> absolutely. got to keep this in context though. it is $120. $119 technically, that's less than a quarter of a price of a full blown ipad. amazon's play here is to get those into the hands of book lovers and generate demand for its kindle ebooks. looks like howe that's how wall street's taking it, barnes & noble shares tumbling more than 2.5% on news their.
you see in the hardware, the ceo touched on this during his big kindle unveil last month. he said 12 months after getting a kindle people read 4.6 times as much as they did the year before they got one. i think you've got to look at this as a catalyst to get book lovers to buy more books digitally and doing it from amazon. the sense of the opportunity -- 1 in 5 u.s. adults has read an ebook according to a pew study earlier this year. ebook readers, people who read them, are more likely to buy physical books online. average readers of ebooks reports having read 24 books in the past year. i don't know if i believe that number though because people who haven't read ebooks say they've read 15 books in the past year. really do people read that many books anymore? is it just me? >> well, jon, they may not read them but they buy them. right? we're all guilty of of that. i got about 600 books sitting on my tablet completely unread. i want to ask you. you and i went back and forth on
twittery few weeks ago about this. how long before -- i mean this sincerely -- how long before amazon begins to simply give away the kindle? >> well, i don't think they'll ever do that because last month they said they're not looking to lose a bunch of money either. they would lose pretty much the sticker price if they gave these things away. they're basically looking to break even on the hardware and make money on the services. >> amongst all the fantastic and glowing and rave reviews, anything that would take the shine off here, jon? >> well, if we get a miniipad in a couple weeks like rumors have it out today, that takes the shine off a little bit because this gets a little bit closer to that amazon price point. not just of this paper white but also of the kindle fire hd which isn't coming out until next month. so we still got a bunch of product announcements this fall. it is the craziest launch fall i've ever seen. we got windows 8 and all those
tablets coming out. meg whitman talking about the elite book tablets coming out next year. >> i need a stocking that is ereader shaped. anyway, it is keeping you in a job, jon. don't complain about being too busy. there is another shortage that you might have to worry about if you're in that phase of life. will this explosion at a japanese chemical plant over the weekend could trigger a worldwide diaper shortage. this plant. yes. they make about 10% of the world's supply of acrylic acid, a key element in disposable diapers. this could slow production of diapers everywhere and drive up the price. the big money bets coming up. hedge fund giant barry rosenstein made a killing on barnes & noble earlier this year. now he's heading to the farm to turn up the heat on another stock. david faber will get that name from him.
and, sure, it's good to hear what the big money's doing, but what are you doing with your money? not that you aren't big money. you might be big money. are you changing up your 401(k) ahead of the election? ] this is karen and jeremiah. they don't know it yet, but they're gonna fall in love, get married, have a couple of kids, [ children laughing ] move to the country, and live a long, happy life together where they almost never fight about money. [ dog barks ] because right after they get married, they'll find some retirement people who are paid on salary, not commission. they'll get straightforward guidance and be able to focus on other things, like each other, which isn't rocket science. it's just common sense. from td ameritrade. a short word that's a tall order. up your game. up the ante. and if you stumble, you get back up. up isn't easy, and we ought to know. we're in the business of up. everyday delta flies a quarter of million people while investing billions improving everything
earlier today we asked you to vote in our street poll -- what are you doing with your money? how are you changing up your investments ahead investments a election? well, 20% of you said a lot. 17% said a little. 63% said, nope, no change. >> status quo discussion. anyway, let's find out what the big money is doing. hedge fund heavyweights have been swapping investment ideas at the annual value investing congress. and our very own david faber is there in the thick of the action with a very special guest. david? >> thanks very much, mandy. i am joined by barry rosenstein, founder of jana partners. we know you in some ways, barry, in some ways as an activist. you presented to the fairly packed hall in there about agriam, a position you have held for some time. why agrium?
52-week high, great performer for jana. why not go somewhere else? >> well, you know, you look at the stock on an absolute basis and the stock is up this year, but you look at it on a, on a relative basis to its peers over the last three years and five years, for example, it underperformed by 29% and 66% respectively. look at it compared to its summer parts valuation and trades significantly below what it's ultimately worth. there's a lot of value to be created here. >> we've heard from you previously on this a bit, but today is it different, is it new, are you seeing something new? is it a new more aggressive approach to jana when it comes to this position in agrium in. >> the thing is, we haven't publicly disclosed what our plans are for the company until today. the company has been reacting to, you know -- >> what you had a meeting -- >> we had a meeting with the company.
privately. and the company has twisted itself up in a million different directions with conflicting statements to try and justify what is unjustifiable which is their conglomerate structure. >> you say conglomerate structure. i know they would hit back immediately saying we're not a conglomera conglomerate, we make fertilizer and sell fertilizer. we're an integrated $16 billion company. we should stay integrated. they hired morgan stanley who said they should because there are a lot of disenergies from separating this company which is your key conclusion that would create value. >> you know, it's kind of ironic that morgan stanley is advising this company and suggesting that the company remain in its conglomerate structure, because when agrium tried to hire, tried to acquire cf industries a couple years ago, cf hired morgan stanley. the very same bankers. and they -- morgan stanley advised cf not to take agrium
paper as consideration because of the conglomerate structure we'd underperform, so it's pure hypocrisy. >> we should point out, i followed that fairly closely. 60% of that wasn't cash, but of course agrium did fail. cf performed very well. back to this idea of separating the company and returning more cash to shareholders, why do you have confidence that would create value? >> you know what, we've had a pretty good track record in the last year with similar situations, right? if you look at marathon petroleum, look at el paso, these are similar companies with downstream distribution businesses, upstream -- wholesale updrestream businesse. very similar dynamic and both companies initially didn't think this made sense. they ultimately agreed their stocks performed dramatically better afterwards, as they agreed with us. so this is very comparable. there's no senergy between the two businesses. there's tremendous upside to be
created by splitting them up. you know, first of all, the company trades at six times, okay, ten times earnings which is valuation befitting its least valuable business, its wholesale business. if you free up what we've seen in similar situations, the company could trade to their respective fair values. $160 million of corporate overhead here that provides no benefit at all. this company, further, in terms of its capital allocation, capital structure of each business, it needs to be separate. each business needs its own capital structure. >> have you talked to any shareholders at all? i guess -- or are you starting that campaign today? because it's not clear -- i've spoken to a few other individual shareholders, what kind of support you have amongst the rest of the shareholder basis. >> we've spoken to quite a few shareholders, actually, as we always do. and, you know, about 70%-plus of the shareholder base is outside of canada, and our view is that
the shareholder base is very supportive of these ideas. i think when they actually see what we're really talking about here today, you know, people will start to ask a lot of questions, but, no, we've gotten -- we wouldn't have gone forward if we didn't feel confident we would have -- >> seems like you would have to face a proxy fight. this was board advised by morgan stanley. not the company, to be fair. the company hired morgan stanley to independently advise it. came back and said, you're worth more together than you are apart. you say otherwise. are you going do have shareholders supporting you? >> it's interesting, morgan stanley, they're all over the place on this. okay? company since they acquired uap, their largest business in the retail space, the company has pointed to using comparable companies, such as tractor supply, watsco, westco, granger, genuine parks. the fairest opinion that jp morgan issued supporting the acquisition by agrium, they cited those comparables.
okay? when we showed up, mike wilson, the ceo in this investor day last year pointed to tractor supply, pointed to all these comps then said these are our comparables, pointed to tractor supply and said this company is our closest peer, we should trade at the same multiple as them. we showed up and said, hey, we agree, you should trade at that multiple and you should separate the business in order to realization it. what do they do? morgan stanley in their infinite wisdom changes the comps, wipes out what they've been talking about for five years and what they've been disclosing. it's disingenuous, borderline unethical. the new comps today -- >> that's nasty there. borderline unethical? >> let me ask you, you don't think so? if the company has disclosed publicly that these are the comps they should be looking at. these are the very comps they used to value the business when they made acquisitions. now they're stepping away from it. guess what their new comps look like? >> i assume they're lower.
>> lower valuations. it's a bunch of companies that, frankly, do not relates to this business in terms of its strategy, geographic location, and small cap companies, majority owned. >> i have to end it there. because we're facing what we call a hard break in the business. this fight is going to go on. happy you joined us. barry rosenstein, jana parter ins. back to you guys. >> thank you for watching "street signs." >> "closing bell" is coming up. see you same time tomorrow.
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